SEC Debates Crypto Privacy vs. National Security in Landmark Roundtable

Chairman Paul Atkins laid out the core dilemma facing U.S. regulators. On one side stands the federal government’s obligation, under laws like the Bank Secrecy Act, to protect Americans from national security threats and deter illicit finance. On the other is what Atkins called “a core American value”: the freedom to conduct one’s financial affairs free from pervasive government and corporate surveillance. He argued that with the advent of crypto, there is a risk of a “steady migration toward a future where the government, and a constellation of intermediaries, can peer into almost every dimension of an individual’s financial life.” This, he stated, is fundamentally incompatible with the free society that has defined America.

Atkins contrasted the digital era with the analog past, where financial surveillance was naturally constrained by paper records, physical distance, and manual processes. These inherent delays, while inconvenient for agencies like the SEC, acted as a natural brake on data collection. In the digital realm, those constraints have “dramatically diminished,” amplifying the stakes of the current conversation. Atkins cautioned regulators to resist a “voracious appetite for data,” urging humility and principle as they navigate the opportunities presented by cryptocurrency.

Chairman Atkins presented a paradoxical vision of cryptocurrency’s future. Public blockchains are, by design, more transparent than any legacy financial system, with every movement of value recorded on a publicly inspectable ledger. This transparency, coupled with the sophisticated capabilities of chain analytics firms, already provides exceptional tools for law enforcement to link on-chain activity to real-world identities. Atkins warned that this infrastructure could be pushed in a dangerous direction.

“If the instinct of the government is to treat every wallet like a broker, every piece of software as an exchange, every transaction as a reportable event, and every protocol as a convenient surveillance node, then the government will transform this ecosystem into a financial panopticon,” Atkins stated. His use of the term “panopticon”—a theoretical prison designed for total observation—underscored his concern that crypto, intended to empower individuals, could instead become the ultimate tool for financial surveillance, far exceeding the reach of traditional systems overseen by the U.S. Treasury and other agencies.

Amidst these warnings, Atkins pointed to a technological solution: privacy-preserving protocols like zero-knowledge proofs. He emphasized that these innovations, which the analog world could not provide, offer a way to verify the legitimacy of users and transactions without enabling the government to map specific activities or access entire financial histories.

“One can imagine systems where a regulated platform can demonstrate that its users have been screened, without the ability to retain a permanent, person-by-person map of every payment, trade, or donation,” Atkins explained. Technologies such as selective disclosure and advanced wallet designs could allow users to prove compliance with regulations—like those stemming from the Bank Secrecy Act—without handing over all their personal details to intermediaries or the government. This approach seeks to balance regulatory needs with the preservation of personal privacy.

Concluding the roundtable’s opening frame, Atkins expressed confidence that a framework could be shaped to ensure that “neither technological nor financial advancements will come at the expense of personal freedoms.” The discussion, led by Commissioner Hester Pierce, thus set the stage for a critical examination of how the SEC and other U.S. regulators can foster innovation in crypto and privacy-enhancing technologies while upholding their mandates to protect investors and national security.